UK shoppers tighten their belts

British shoppers are tightening their belts due to market volatility and gloomy economic outlooks

LONDON, England -- UK retail sales edged higher in July for the first time in three months but at a slower pace than expected, pointing to a continuing weak recovery in Europe's second largest economy.

Seasonally adjusted sales volume rose 0.3 percent last month, bringing the year-on-year growth rate to 4.5 percent, the Office for National Statistics said on Thursday. Economists had expected a month-on-month rise of 0.6 percent and an annual increase of 4.7 percent.

Retail sales declined by a revised 0.4 percent in June and by 0.6 percent in May. However, the ONS said the July increase may have been distorted by lower than usual sales in June due to the bank holiday to celebrate Queen Elizabeth II's Golden Jubilee.

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Still, the July figures show consumer spending -- which accounts for two-thirds of the economy -- is beginning to slip as shoppers tighten their belts because of volatile stock markets and concern over the global economy.

"This does indicate to us that the slowdown in consumer spending is genuine," George Buckley, an analysts at Deutsche Bank, told Reuters. "We expect to see the slowdown continuing going forward. This is certainly not an upbeat report."

The slowdown in retail sales could prompt the Bank of England to cut interest rates to spur consumer spending. The BoE reduced its main lending rate seven times in 2001 -- to a 38-year low of 4 percent -- in an effort to prop up the economy.

"There are some inflationary pressures in the system, particularly the service sector, which is likely to stay the authorities' hand," Jeremy Batstone, an analyst NatWest Stockbrokers, told Reuters.

"We have seen a rebound in the retail sales but for the time being the situation is still fairly fragile.... Certainly, if consumer spending does begin to drop, then the authorities will have to take note."

The ONS said July sales were hurt by a 1.8 percent drop in sales volumes at generalised outlets such as department stores. In addition, sales at home improvement outlets fell 0.9 percent in July, for an annual rate of growth of 1.3 percent, the agency said.